Buyout leased vehicle or turn in and lease again?

[Monkeyleg]

Back in late 2002, it was pretty obvious that I'd wrung every last mile out of my beater 1988 Ford Ranger pickup. And I was also embarassing myself when going on sales calls in said pickup.

I did a "two-fer" by leasing a 2003 PT Cruiser and surprising my wife with it for Christmas. Best gift ever. I then inherited her 1991 Saturn SL1, which to this day still has just 83,000 miles on it. Neither of us drive much.

The lease on the Cruiser will end on April 1st of next year. We have the option to buy it for $8440, or just turn it in.

Right now the Cruiser has just over 13,000 miles on it. By April 1st, it won't even have 16,000 miles on it.

All of the above is preface to my question, which I further need to preface by saying that I stink when it comes to finances. I could screw up a free lunch.

As I see it, my options are to just turn it in and lease another Cruiser, or to take out a loan and buy it from Chrysler Leasing. Even if I did a three-year loan, the car would have less than 35,000 miles on it before I paid off the loan.

Going the loan route was always my plan, but there are some large bills looming ahead for next year: more medical expenses, personal and business tax payments, and a special assessment for reconstruction of our street. And there's more beyond that.

I called my brother last night for his advice, since he's the most financially astute person I know. He just has the gift for making money. He advised me to wait until perhaps February, and then see what the value of the Cruiser might be. He said that low mileage isn't a big factor in the value of a car, and that I might actually do better to just lease another car.

My take on the situation is that I will already have made 39 payments on the Cruiser by April 1, and by turning it in, will have nothing after that. If I take out a loan and buy it, I will have made something like 74 payments on it (lease and loan payments combined), but it will still be a low-mileage car that would continue to service us well.

On the flip side, buying the car means paying for maintenance: tires, brakes, hoses, and all the other things that nickle-and-dime car owners. Just rolling over the lease would mean getting a new vehicle with a full warranty.

Any advice, comments, personal stories are very welcome.

[XLMiguel]

Hmmmm.  Need to factor in the tax implications of a new lease.   Is it all deductable as business expense?  Can you re-lease the same car?  Can you buy the car with a home equity loan?

OTOH, you know the maintenance history of the car, and if its been good to you, maybe it's a good bet to buy it and run it till the wheels fall off.  Can you buy an extendeed warranty?  Maybe sell the Saturn and lease a new Cruiser? (14 y.o car is a bigger maintenance risk-)

To me the real issue is cash flow - money out of pocket month-to-month and your risk tolerance.  Compare the cost of the loan (with  some add-in contingency for maintenance & ins.) vs lease.  Also, if the car is a 2003 with low miles, there should be some warrranty left, yes?  Are you at all mechanically inclined - can you do the simple stuff yourself?  If you think the car has been well maintained and you can plan/budget for scheduled maintenance expenses and are willing to do some of the  basic stuff (and keep records and receipts), purchase makes sense.

[grampster]

Call the leasing company and ask them what the payoff to buy it is right now.  Remind them that you are aware that there is interest built into your lease payments, so how much right now, minus the interest, for you to own it.  With the mileage on it, its basically brand new and its a nice vehicle.  Now you have a set of figures to further muddy the water. heh.  Since leasing is rent, you have rented it till now.  The figure they give you is for a basically brand new car.  The miles you drive it, if you keep it another 5 years it'll still only have 30k on it.  I'd buy it.

[280plus]

I see we have duplicate threads. I copied and pasted this here and hopefully the other thread will fall off the board.

He advised me to wait until perhaps February, and then see what the value of the Cruiser might be.

I agree. Or research 2 YO Cruisers and see how their resale value is holding up. Check consuners digest and see what kind of problems have been noted for your model. Any really expensive problems showing up regularly?

What would the payments be on the $8440? I'd try to do it in 2 years instead of 3. But that's just me. I did some quick figuring and my guess is ~ $390 a month for 24 or $340 for 36. I multiplied $8440 by 1.12 for an approximate payoff at 12%.

Work on your credit rating. By just paying everything on time and getting your debt down you will begin to recieve very low credit offers from credit card companies. I took the remaining $11,000 x 6% debt on my truck and put it on a credit card at 3.9% for the life of the loan. I have about that amount again remaining in debt that occurred from putting myself into business and sending a kid to fool around in college. I have some of it ~ $8,000 at 2.99%, also for the life of the loan and the rest is down at 0% on with about 8 months left before it reverts and I am working like crazy to pay off before it does. I am constantly working to whittle away at those interest rates. The thing I like about this is that the "Minimum Payment" on a card is much less than a set in stone loan payment. The SECRET IS you have to be DISCIPLINED enough so that when you have a good month you pay as much as you can on the card but if you're having a slow month it is very easy to make the minimum payments because they really are minimal. I always look at paying just the minimum a setback. After a while of keeping those payments up all the card companies will be screaming for your business and offering you ridiculously low rates and massive credit lines. Especially now because I hear people are starting to get behind. They are trying to snag people with this. Again it all comes down to discipline. Remember, if you buy it, you have to pay for it. They want you to incur a lot of debt and get behind because THAT'S where their money is. This is why they can offer such deals.

I don't want to make the story even longer but...

A couple of tips:

I don't normally go for the offers that will transfer a balance to a low rate but charge a 3% transfer fee.

If I DO go for one of those I make sure I do it as a one shot large sum so that I avoid paying multiple transfer fees. They have a max, USUALLY 50$ but if you transfer a bunch of small ones you can go well over $50 in total fees.

Another, VERY IMPORTANT! Once you have established a low rate account you DO NOT want to purchase anything on it. What they do is pay off the low rate balance transfer first and leave the higher rate purchase lingering and sucking the cash out of your pocket until the low rate balance is paid off. They're sneaky little devils. And I LOVE beating them at their own game!

All this is just to tell you that there are more and easier ways to pay for that car if you decide to keep it. Sorry it took so long

More  Me and the wife are kind of in the same deal with GM, but for 4 years. We have also discussed this scenario. What it looks like to me is that if we keep the car and payoff the loan we will not necessarily have paid much more for the car than we would have had we gone conventional. What we HAVE DONE (if we keep it) is stretched out the payments for 7 years instead of 4 or even 6. We'll pay ~ $11,000 for a 4 YO Monte which brings us back to "How much is it worth when it's time to buy or trade?

Equal to or more than blue book = Good.

Substantially LESS than blue book = BAD!!

Unfortunately, only time will tell.

[Ben]

I agree with Mike -- as long as you maintain it well,  buy it and drive it till the wheels fall off. If you don't like keeping vehicles a long time or are not into regular maintenance, then as much as I'm personally* against leases, another lease may in fact be the best bet in your situation.

* Readers please note I said "personally". I recognize that leases can be a good deal in some - especially business - situations and I don't wish to be flamed.

[garrettwc]

I agree with your brother and with 280, with the exception that mileage does matter. I checked a couple of the only book value sites and mileage in the 16K range will add on average, $800 to the value of the car.

Prices vary by region, but a stripped down basic 4 cyl PT Cruiser in my area runs from a low wholesale of $8500 to a high retail of $10,500. If it continues to hold it's value that well, then you would come out ahead to buy it. If there's a big recall or something between now and then and the price drops like a rock, you should dump it.

The caveat is the looming bills you mentioned. A bargain isn't a bargain if you can't afford the payments. You might want to do some cash flow projections.

[Brad Johnson]

I agree with Mike -- as long as you maintain it well,  buy it and drive it till the wheels fall off. If you don't like keeping vehicles a long time or are not into regular maintenance, then as much as I'm personally* against leases, another lease may in fact be the best bet in your situation.

+1

Another important note - get out of the mindset that most people have about vehicles. It's not an asset, it's an expense. It's a consumable, just like a battery. Treat it that way when it comes to the financial aspect. For decades I heard my father say "You better trade in while you've got some value left." Okay, so I traded every couple of years and kept my payments at around $450-$500 per month. Well, guess what. I could have waited until I had ZERO value in my trade in and still bought another vehicle for around $450-$500 per month. Or kept it after it was paid off and had no payment and minimal expected repair expenses for at least a couple of years.

After an ex-wife induced financial crisis a few years back I put paper to pencil and started treating my car just like I treat my electric bill - an amotortized annual expense. In other words, how much did (does) it cost me to operated this vehicle per mile and per year. Guess what, it's far FAR cheaper to buy a 1-2 year old low-mileage vehicle on a three year note, then keep it five years as opposed to buying a brand new vehicle and financing it for five years. Cheaper still is to buy a slightly used vehicle, care for it, and drive it until you are faced with an extreme expense (like tranny or engine). Then sell it to somebody for a beater or project car and start all over again.

As an example, my prvious car was a '90 Taurus SHO which I purchased used. It was maintenance intensive, to say the least. The unexpected repairs, plus my insane regular service schedule (which even included things like new door seals every couple of years) resulted in an annual ownership expense of rougly $2500, not including fuel. That's $208.33 per month. Everyone thought I was nuts for keeping it, but consider that it was in showroom condition the entire 10 years I owned it and there was absolutely no way I could have traded for as nice a car and kept the ownership cost even remotely close. Only when I was faced with a complete engine and suspension overhaul did I trade. And then I got a one year old car and let someone else take the hickey on the depreciation. The way I have it figured, I drive a car just as nice as my parents at about 1/3 the annualized ownership cost.

Brad

(edited to add)

Also don't fall into the "Trade In Allowance" and "We're giving you this discount" trap. If you walk into a dealer and the first thing you ask is what'll you give me on trade, they know they gotcha. They can maneuver the trade-in/purchase price all they want and make you think you are just coming out dandy. It's a smoke screen purposely designed to be confusing. Don't even look at those two numbers. Look at the one that counts - the one in the bottom right-hand corner. That's the important one. Want to see a salesman's eyes bug out? Tell him you will pay him $5000 OVER the sticker price if he will give you (insert value) for your trade-in. I did it on my last trade and it just blew the poor kid's mind - he locked up completely and just stood there staring trying to grasp what I'd just offered. The sales manager knew what I was up to - when he came out to rescue the poor salesman he looked at me and laughed good-naturedly. We ended up getting the deal settled to our mutual satisfaction in just a couple of minutes. I don't think the the saleman has recovered.

[The Rabbi]

+1 on Brad Johnson's comment.  At the end of a car loan payment schedule you have a car, which is at least some kind of salable asset.  At the end of the lease period you have...another lease period.  Unless someone needs a new flashy car for business or something I just can't recommend it.  The tax implications are probably negligible for most people.  I look for cars about 5 years old with low miles and then drive them til they wont go no more.  At $500 a month on a 7 year payment that works out to $42,000.  I know there are lots of things I'd like to buy with $42k.

[280plus]

I look for cars about 5 years old with low miles and then drive them til they wont go no more.

And I thought I was the only one. I've NEVER owned a new car. (The Monte is the wife's, or "Moneybags" as we call her)) I've got a 1990 Plymouth Acclaim with about 75,000 miles on it that runs like a top. I havn't made a payment on a personal vehicle in YEARS! A new MAACO paint job a couple years ago did wonders for it and the self esteem you speak of.

Which reminds me, you ARE writing the car off as a business expense, along with your gas, oil and maintenance, RIGHT? As long as you have a second car that is your "personal vehicle" the newer Cruiser can be a complete write off. Of course when you sell it it is treated as an asset to the business and the gain subject to income tax. But if you hang on to it till there's no value left...

[Monkeyleg]

Thanks for all the replies.

1. The car is used 99.9% exclusively by my wife, so no business tax deduction. Chrysler wouldn't do a business lease for the terms that I negotiated.

2. In my 54 years, I've only bought two new vehicles: the aforementioned '88 Ford Ranger, which I drove until it was just about dead (and sold for $250), and the 1991 Saturn, which I still drive.

3. The $8440 is set in stone in the lease contract. I knew that my wife would only put on about 4500 miles a year, so the plan was to buy it at the end of the contract. If I add together all of the lease payments, the cash up front, the down payment on a loan, and the loan payments, I come up with pretty much the price of the vehicle that I negotiated. (I didn't tell the salesman I was looking to lease the car until I'd gotten him down to a bare-bones price).

4. I don't need to own a new or even newer vehicle, just one that doesn't look terrible, and one that is reliable for my wife to drive. She works 2nd shift, and I don't want her stuck in downtown Milwaukee late at night.

5. I've been working on cars since I was 15, and have done everything from complete motor rebuilds to ground-up restorations on sports cars, including welding, painting, and everything else. I can still do brake jobs, new radiators, and other repairs, but my back won't tolerate the heavy stuff. Also, Chrysler stuffed that engine into a compartment so small that it's near impossible for an adult to even slip his/her hand down to reach a belt or bolt.

6. The biggest problem is cash flow: I know now that cash will be extremely tight next March. It's very possible that a bank may not even lend us money for the car, given the income that I'll show on my 1099 (one advantage/disadvantage of being incorporated is being able to find ways to take money out of the corp. without paying income taxes).

7. We get low-interest or no-interest credit card offers all the time. I got myself into trouble with those a few years back, and learned that I'm the type that shouldn't have them. That's why I stick to my American Express card: the balance is due, period.

Given the replies, and my typing my own reply, it would seem that the best route is to try to make sure the money is there for a down payment on the car, and that leasing another car is the fall-back position.

What's really frustrating is that, even a few years ago, my income was such that none of this would be an issue.

[garrettwc]

What's really frustrating is that, even a few years ago, my income was such that none of this would be an issue.

I feel ya. Hope things get better for you.

Thumbs up on #3. As a former finance manager for a new car dealer, I can tell you that's the only way to do it.